Digital China Announces FY2011/12 Third Quarterly Results

HONG KONG, February 21, 2012 /PRNewswire-Asia/ --

Highlights:

Digital China Holdings Limited ("Digital China" or the "Group"; Stock Code: 00861.HK), China's largest integrated IT services provider, today announced the unaudited consolidated results of the Company and its subsidiaries (collectively the "Group") for the nine months ended 31 December 2011 (the "Period").

The Group maintained its strategy to expand its Sm@rt City business in five areas and achieved record success. These five areas are 1) industry application software and IT infrastructure, 2) smart devices and mobile solutions, 3) enterprise application and infrastructure, 4) Sm@rt City operation services and 5) Sm@rt City collaborative industries.

Mr. Guo Wei, Chairman of the Board of Digital China said, "The Board is pleased with management's results and Digital China's revenue and net profit for the nine-months of FY2011/12. Under management's guidance, Digital China's momentum remains strong and its installation pipeline is full for the foreseeable future. We are very happy that management generated more profit for the first nine months of this fiscal year than that of the last entire financial year. Management's strategy of 'driving growth, speeding up transformation and building Sm@rt City' has been successful and it shall continue its implementation as it continues to maximize value enhancement at all its businesses. We are proud that management has been recognized for its efforts through the inclusion in Forbes Asia's Fab 50 for the past three consecutive years as well as being named as one of China's Most Promising Companies in 2011 by The Asset magazine."

Financial Review

During the Period, the Group achieved record turnover, net profit, EPS and operating cash flow. The Group recorded turnover of approximately HK$53,051 million, representing 25.17% growth as compared to approximately HK$42,382 million in the nine-months of FY2010/11. The Group's gross profit margin for the Period was 7.52%, which was 0.7 percentage point higher than 6.82% for the comparable period of last year. Total gross profit recorded a significant growth of 37.97% to HK$3,990 million. Profit attributable to equity holders of the parent of the Group in FY2011/12 3Q was HK$1,051 million, a 26.74% growth as compared to approximately HK$829 million for the corresponding period of last fiscal year. Profit attributable to equity holders reported for the first three quarters of the current fiscal year has already exceeded the total profit attributable to equity holders of last entire fiscal year. Basic earnings per share amounted to 98.11 HK cents, which was 22% higher as compared to 80.42 HK cents for the nine-months of FY2010/11. The profitability of key businesses continued to grow, creating favorable conditions for the Group to achieve operating targets for this fiscal year.

Management improved cash flow through stringent risk controls and cash flow management amidst a macroeconomic environment constrained by tightened monetary policies. Net operating cash flow for the first three quarters of the current fiscal year amounted to approximately HK$640 million. The Group's cash turnover was 15.99 days for the first three quarters of the current fiscal year compared to 14.86 days for the corresponding period of the last fiscal year.

Segment Results

*Restate: The Group started to make adjustments to parts of the businesses of the Supply Chain Services Business in the previous financial year. Parts of the operations of the Supply Chain Services Business will continue to focus on the hi-tech companies and the industry market providing one-stop supply chain consultancy and execution services, while others will, in tandem with adjustments to our business strategy, shift to a distributor focus on the sale of general IT products, instead of providing one-stop supply chain consultancy and execution services to the hi-tech companies. In order to provide a more appropriate presentation for the operating segment information, the Group reclassified the results of the Fulfillment business (FA business) from the "Supply Chain Services" segment into the "Distribution" segment and restated the related results of the previous financial year.

Business Review

Services Business (primary focus on Industries market)

Revenue growth in the nine-months of FY2011/12 was mainly attributable to the "Sm@rt City" strategy implemented at the beginning of the current fiscal year and our "customer-focused and service-oriented" strategy transformation articulated five years ago. The nine-months revenue of FY2011/12 from the financial and government sectors grew 37.70% and 46.51% respectively, representing a strong growth momentum. In the financial sector, we extended our reach in core banking application software and infrastructure services. We also benefitted from the transformation of local banks to regional and nationwide-banks because of increased demand for core banking systems. Conversely, these transformations bolstered our market share of nationwide-banking clients. Our newly added major customers during the Period include Shanghai Rural Commercial Bank and Yellow River Rural Commercial Bank. In the government sector, we focused on the expansion of local taxation markets with customers from local tax authorities in Anhui, Shaanxi, Hainan and Shandong. Looking forward, we will make concerted effort to promote our self-branded services through productization and standardization of our services, which should become a new driving force for our future growth.

The Group maintained and strengthened its leading position as the "China's Sm@rt City expert" in the current financial year. Our "Sm@rt City" strategy extended to the regional health-care information platform, the exhibition and experience center as well as regional social security information platform. The Group has accomplished the total contracts targeted for the whole financial year. These projects formed a solid customer base for our future development and provided a positive start to the regional implementation of our five strategic paths.

Systems Business (primary focus on the Industry and Enterprise Markets)

The Systems Business continued to expand market share with major vendors. Contributing to this performance was peak procurement from corporate customers ahead of the year-end. The turnover for packaged software and storage products grew 89.06% and 52.41% during the nine-months of FY2011/12, respectively, compared to the comparable period last year. Meanwhile, networking equipment sales benefitted from increased market share at major vendors and additional business from new partners. The gross profit margin of the Systems Business was maintained by leveraging its ability to add value through technical knowledge. Elsewhere, our product solutions, including communications, video conferencing and security applications, recorded robust year-on-year revenue growth.

Supply Chain Services Business (primary focus on High tech Industry, Branded e-Commerce and Online Service Providers and Platform Operators)

Our Supply Chain Services Business continues to be heavily influenced by big box Chain Electronic Stores (CES). During the quarter, we expanded our regional electronic store network and increased cooperation with potential new customers, such as Wal-Mart. At the same time, we strengthened our relationship with our major customer including Gome. To enhance our performance, we sought to enrich Gome and other customer's product offerings by introducing higher-end products that command higher profit margins, such as Apple products and accessories.

The B2C business for e-commerce company segment, a new business that commenced in the current fiscal year, made considerable contribution during the nine-months of FY2011/12. The Company gained valuable experience in further extending its coverage in this emerging industry through the cooperation with e-commerce enterprises such as Taobao. Meanwhile, the post-sales service business enjoyed expansion through cooperation with key manufacturers including HP, Dell and Lenovo. The outstanding performance of out-of-warranty services bolstered overall margin in this segment.

Distribution Business (primary focus on the SMB & Consumer Markets)

Distribution Business sustained growth by probing opportunities arising from the demand for accessories, PC servers and consumer IT products. Driven by increased sales of CPUs and the expansion of our product lines to include hard disk drives (HDD) and monitors, the turnover for accessories increased 55.85% as compared to the corresponding period of last financial year. Turnover growth during the nine-months of FY2011/12 for PC servers grew 25.32% year-on-year, attributable to the ongoing replacement of PC servers by UNIX servers and increased demand from the Small Medium-sized Business (SMB) market. Meanwhile, the sale of notebook computers, a core element of the Distribution Business, recorded double-digit turnover growth during the nine-months of FY2011/12, despite lower unit selling prices due to intense competition. The turnover for the third quarter recorded an improvement of 24.91% as compared to the third quarter of last financial year, as a result of the consolidated demands reported during the New Year and Lunar New Year. The shortage of HDD supply due to the flood in Thailand also led to an increase in the gross profit margin as compared to the third quarter of last financial year.

Moreover, management has developed and expanded new distribution channels, including e-commerce retail enterprises and mega chain retail stores. The Group opened 156 new Digital China "@PORT" franchise retail outlets and concession counters during the nine-months of FY2011/12 to bring the total number of "@PORT" outlets and counters to 790.

Market Outlook

Mr. Lin Yang, the CEO of Digital China commented, "Management believes that by leveraging its solid foundation, its continuous focus on service transformation and the Sm@rt City-focused strategy, the Company can roll-out successful strategies and fulfill prospective operating targets that will maximize shareholder value. The current market of global economic uncertainty resulting from the Euro debt crisis and slowing domestic growth in the PRC presents the Group with challenges and opportunities. However, the Group remains confident because of its commitment to "Sm@rt City" implementation. Meanwhile, the Group believes it will benefit from increased global IT spending because of its position as one of the leading IT companies in China. Management will closely monitor market volatility and related risk indicators. It will maintain flexibility in order to make tactical adjustments to its business strategies as well as implement stringent cost control in order to capture potential business opportunities that could further extend its lead in the market."

About Digital China

Digital China Holdings Limited ("Digital China" or the "Group"; Stock Code: 00861.HK) is the largest integrated IT services provider in the Greater China area. Digital China provides end-to-end integrated IT services to customers on the back of a complete IT service value chain that covers IT planning and consultation, design and implementation of software solutions, outsourcing of IT system operations and maintenance, systems integration, IT distribution and maintenance.

With persistent effort in carrying out its "customer-focused and service-oriented" strategy, Digital China advocates the Sm@rt City strategy and drives business development in five areas, including industry application software and IT infrastructure, smart devices and mobile solutions, enterprise application and infrastructure, Sm@rt City operation service and Sm@rt City collaborative industry. Leveraging urbanization and city informatization in China, the Group has become a Sm@rt City expert with a forward-looking flexible structure and has implemented the most Sm@rt City installations.

For additional information about Digital China, please visit the Group's website at www.digitalchina.com.hk.

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